Depreciation

[AllanDJ]

No risk at all, you are being rude! I know fine well what a PCP is and if it actually turned out anything like it was supposed to do, then it would be fine and nobody here would be complaining of the excessive depreciation which has largely made the current PCP deals with unrealistic GFMV pretty much pointless.

 

I only pointed out the example of the PCH deal on the new Superb because it is a much more straightforward deal than the PCP with no nasty surprises at the end of it, you pay a rental fee for a set period and hand the car back in decent condition, end of story. The advantage of the PCP deal when it works properly is the options that it gives you, mainly the option to buy it outright or trade it in with any other car franchise, assuming it has a reasonably second hand value. I still don't rule out buying my current car outright if the deal makes sense at that time but that would need to be a longterm thing to make economic sense. I'll make my mind up by next autumn as to what best to do.

 

In any case the decision to buy this car was unfortunately extremely rushed with very little time to do as much research as I would normally do, as my previous car was wiped out by someone running into the back of it when I was waiting at a junction! The legal stuff to do with that is still ongoing with very real whiplash, which even now is still giving me some pain at times. I needed a new car very quickly and the PCP deal seemed like a good option at the time. With the benefit of hindsight, PCH might well have been a better option for me but that is just one of these things, we live and learn!

[cheezemonkhai]

The dealer kept banging on about equity in the car and I kept saying I don't take that into account as there is no guarantee.

Eventually they realised they'd have to do something on the deal.

 

Frankly the GFV is tiny (Circa £8.5k) at 3.5 years, but I would think the true value will be lower.

If it is I'll almost certainly just be handing it back and if it's higher, I'll probably look to move brands.

Edited 23 December, 2015 by cheezemonkhai

[pipsyp]

Certainly with regards to my own situation....as appreciative as I am (to some degree) that the car is costing me sub £300/month to sub-purchase (which for a 23k car with very little deposit is v cheap...no other manufacturer could get near it)......I know the reality is that it should be costing me at least nearer £400/month if the GFV was anywhere near being accurate....then it isnt a cheap car.

I think Skoda rely on their finance packages to sell the volumes they do in the UK and also rely on making their finance v affordable in order to acheive that aim......correcting the GFVs willl just serve to make the finance packages far less attractive and will hurt sales....assuming thats why theyve taken no action.

[cheezemonkhai]

It's the old Citroen problem.

While buying a new one is so cheap, nobody will buy nearly new.

 

But if they stop the finance deals for a while, or make the general deals less good, then there will be a slow in depreciation of the value of used cars.

[pipsyp]

It's the old Citroen problem.

While buying a new one is so cheap, nobody will buy nearly new.

But if they stop the finance deals for a while, or make the general deals less good, then there will be a slow in depreciation of the value of used cars.

Id agree with that.....make new that bit less affordable than used....used demand picks up and the used surplus starts to dwindle thus (hopefully) firming up used prices.

They ought to really start by setting real world GFVs and I guess the rest would follow. Also perhaps making the 0% offer an occasional thing rather than their staple offering......or go back to charging loan interest but giving VAT discount....thus bringing the vehicle RRP down to a more realistic level and softening residual loss that little bit.

Im not a financial expert but its pretty clear the way they are running the finance deals at present is pretty wrong...good for them and bad for us (in some respects) right now but will backfire on them when many of us on the 0% choose to VT or hand back the cars.

[Mallettsmallett]

I think if anyone has a salesman that either explicitly says or even implies, that the car will be worth anything more than the gfv then I would suspect this is an fsa breach, and if you have evidence (like a recorded conversation, for example) this would be very bad news for anyone selling on behalf of vwfs.

[pipsyp]

My dealer said loosely that the Mk3 was "bound" to be a better bet than the Mk2 in that it was a better car with little or no image problem that likely held back sales of the Mk2 to some degree.

Excitement of buying a new car at the time and relative naivety I was taken in a bit I guess but the car was so new at the time I guess no one really knew how it would be...and probably didnt forsee the outcome as is.

Personally I think Skoda would have done themselves a favour doing periods of VAT discount on certain models as they used to rather than going the low deposit 0% route on overcooked RRP's but thats just my view.

[RapidPaul]

Trying to look on the bright side... with PCP, the idea is that your payments cover the difference between the agreed purchase price and the GFV, taking into account any interest (if any). If you get to the end of the PCP and the car is actually worth less than the GFV, then you will have paid less than you should have done and can walk away without the millstone of depreciation around your neck that you would have had if you had bought the car outright. If (and it's still an if) this turns out to be the case, then the real losers will not be the PCP customers (particularly those with 0% deals), but the cash buyers who are stuck with a car that is worth less than they might have expected. While we'd all like a nice little nest egg at the end of our PCPs, no-one should be relying on it for their next car purchase. To put it another way, if you finish a 3 year PCP and you have £2k more than the GFV to play with, then it's probably because your monthly payments were set on the high side in the first place.

[pipsyp]

Trying to look on the bright side... with PCP, the idea is that your payments cover the difference between the agreed purchase price and the GFV, taking into account any interest (if any). If you get to the end of the PCP and the car is actually worth less than the GFV, then you will have paid less than you should have done and can walk away without the millstone of depreciation around your neck that you would have had if you had bought the car outright. If (and it's still an if) this turns out to be the case, then the real losers will not be the PCP customers (particularly those with 0% deals), but the cash buyers who are stuck with a car that is worth less than they might have expected. While we'd all like a nice little nest egg at the end of our PCPs, no-one should be relying on it for their next car purchase. To put it another way, if you finish a 3 year PCP and you have £2k more than the GFV to play with, then it's probably because your monthly payments were set on the high side in the first place.

Fair enough RapidPaul but you can look at it two ways.....I agree in this instance paying less per month than I probably ought to be in some respects isnt a bad thing.....but part of the consequence of course is that its carrying a £3.5/4k tracking debt (which isnt really softening)....the reality is that even if I really needed to get rid I could ill afford to (lets face it who is really going to want to pay a finance company or garage that sort of money just to make a car disappear).

For me this really does boil down to responsible lending....Skoda know the only way they can shift cars on finance compared to their main competition is to make them much cheaper to attain; certainly in terms of upfront cost and monthly commitment.....but without decent residuals this just doesnt work and all they are really serving to do is lock people into long term PCP commitments....the idea of PCP is thatbits supposed to be relatively flexible....but in the case of the O3 unless you put down a whacking great deposit (all of which goes up in smoke straight away) its not flexible at all.

Dont get me wrong, I know PCP is a bit of a gamble and success/failure largely depends on the car chosen and how the used market performs but Skoda UK IMHO have created a situation for themselves and their customers through poor financing just to shift volume....certainly the GFVs set today should be more reflective of the trade value of cars today rather than what they expected them to be on launch...as its obvious now they are not going to be worth what VWFS estimated way back when.

Perhaps they have done....Ive not gotten a finance estimate recently so I wouldnt know but if they are still suggesting a 2.0 TDI SE-L estate will book £10.3k at 42 months old then they clearly havent.

Personally I can live with it....my wife now has a newish, reliable and safe car to cart our kids around in...its doing next to no miles so chances of me having to carry out any planned maintenance on it now is next to none and I'll either VT it as soon as 50% is paid or just run it to the end of term and give it back....I certainly wont be buying it though as I am sure is the case for many other O3 owning briskodians.

[Dr Zoidberg]

I don't see why people are so eager to terminate the agreement as soon as possible, especially if you are going to take out a new PCP on a different car and return to the steepest part of the depreciation curve.

[andyvee]

Because if you treat it like a lease, why keep paying x pounds a month on a 3 year old car when you can switch in to a new one for a similar repayment.

To most people on PCP it is all about the monthly payment.

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[pipsyp]

I don't see why people are so eager to terminate the agreement as soon as possible, especially if you are going to take out a new PCP on a different car and return to the steepest part of the depreciation curve.

Two years into a 42 month agreement isnt that early really Zoidberg....certainly a well orchestrated finance agreement shouldnt really leave someone circa £3.5/4k in negative equity at that point. Just my opinion though.

I had a similar situation with a VW Polo a few years back....but that was due to a new model being released within a year and hammering the previous gens residuals....but in part due to an overambitious GFV making it cheap monthly.

Dont get me wrong cars are a mugs game...no one really wins apart from the finance company....after all Id imagine the margin Skoda UK has in these vehicles is enough to see them making good profit from a car even if it is handed back to them as a finance loss.

Its just frustrating really that the O3 has turned out to be such a poor bet compared to the Mk2 and it is partly down to how they are being financed...also are a victim of their own success (oversupply/lack of used demand).

[RapidPaul]

Fair enough RapidPaul but you can look at it two ways.....I agree in this instance paying less per month than I probably ought to be in some respects isnt a bad thing.....but part of the consequence of course is that its carrying a £3.5/4k tracking debt (which isnt really softening)....the reality is that even if I really needed to get rid I could ill afford to (lets face it who is really going to want to pay a finance company or garage that sort of money just to make a car disappear).

That's a very fair point, and the whole negative equity situation is my biggest concern about PCP. If I were to lose my job tomorrow, I'd be very worried about the consequences as far as car finance is concerned. I read a story about a chap that had to hand back a well-specced 3 Series and clear c. £10k in negative equity when he lost his job and couldn't make the payments.

Having said that, there are things that can be done to minimise the risk. If you steer away from the spec levels/engines that traditionally depreciate the most, don't pay a bare minimum deposit (similarly, don't pay too much. 10-15% is generally regarded as the sweet spot) and most importantly don't load the car with options that you don't really need (you won't get that money back) then you can reduce the risks.

To reduce the risk further, you can get PCP on used or nearly new cars. Skoda do deposit contributions or preferential interest rates from time-to-time on used stock. I bought a 1 year old Skoda on a 3 year PCP with about 12% deposit. 6 months down the line and according to most valuations I should have no negative equity if things go wrong, which is a big weight off my mind.

My wife's Fiat, on the other hand...

[pipsyp]

That's a very fair point, and the whole negative equity situation is my biggest concern about PCP. If I were to lose my job tomorrow, I'd be very worried about the consequences as far as car finance is concerned. I read a story about a chap that had to hand back a well-specced 3 Series and clear c. £10k in negative equity when he lost his job and couldn't make the payments.

Having said that, there are things that can be done to minimise the risk. If you steer away from the spec levels/engines that traditionally depreciate the most, don't pay a bare minimum deposit (similarly, don't pay too much. 10-15% is generally regarded as the sweet spot) and most importantly don't load the car with options that you don't really need (you won't get that money back) then you can reduce the risks.

To reduce the risk further, you can get PCP on used or nearly new cars. Skoda do deposit contributions or preferential interest rates from time-to-time on used stock. I bought a 1 year old Skoda on a 3 year PCP with about 12% deposit. 6 months down the line and according to most valuations I should have no negative equity if things go wrong, which is a big weight off my mind.

My wife's Fiat, on the other hand...

Yeah its all a game to be honest...you (sort of) win some and lose some.

I dont believe in big deposits on PCP myself....sure they can soften the neg equity hit (or cancel it out) and make the car a little cheaper a month to finance but personally Id rather put as little as possible up front into financing something that just depreciates....and this case badly :-)

Absolutely with you on spec....Skodas are generally well specified and my Elegance is completely stock bar a spare wheel...I even went with Candy White so I didnt have to fork out for metallic...liking it is but a side point. Many get drawn into speccing big car options....car like this you might just as well throw the money in a can and burn it as it'll do little or nothing to vastly improve its resale down the line...might make it easier to sell but people buying a used Skoda are going to want to pay as little as possible for it regardless of the spec. Fair shout to those that do it but wager few can argue its a sensible financial move...unless of course you are buying something to run for years until it dies/starts costing serious money to maintain.

Problem with used PCP's are that the finance rates rarely come anywhere near touching a new car deal....I considered buying a well spec'd ex demo Mk2 vRS TDI but buying a new Blackline was going to be far cheaper per month so a no brainer. That said given you have already benefitted from a fair bit of residual loss buying used it is less likely to find yourself in serious neg equity on a used car I'll give you that....probably not bad to pay a little more per month for that priviledge :-)

I definitely think next time I am either going to buy something a few years old but in good shape (maybe a bigger engined E90/91 3 series), spend a couple of grand on something true bangernomics style and jusr use it until something expensive breaks on it or if going for something new I'll probably resort to a 3 + 23 10k/year PCH.

When you think you can secure a 335d xDrive M Sport tourer on such a deal for about 1k down and £400ish/month and Im paying 300ish for my Octavia there are some deals to be had.

[M12MKD]

So what people are saying is exactly what I said over a year ago.

If I'm to be honest. A good lease deal is probably cheaper if you like to change every 3 years

[RapidPaul]

I'm interested to know if anyone has reached the end of their PCP deal and been told there's no additional equity left over and above the GFV? I guess we won't know unless someone took out a 24 month package, but the owners of early cars must be about to get to that stage soon?

[M12MKD]

They will have something towards a new car. Dealers will do a deal to get extra sales.

It's people who want to walk away that will have nothing to walk away with.

[Zillio]

The second hand market in VRS TSIs does not seem too great I keep looking and thinking I can pick up a new one discounted for just a little more than most of the used deals, especially the nearly new ones. Can not see many selling till the price drops some more, seen some of the cars on the market since middle of the year.

[Defenderben]

They will have something towards a new car. Dealers will do a deal to get extra sales.

It's people who want to walk away that will have nothing to walk away with.

Do not understand when you say "its people who want to walk away that will have nothing" ???

That is the nature of a PCP if you walk away at the end you have nothing or do you mean something else by that statement?

[zappahey]

...if going for something new I'll probably resort to a 3 + 23 10k/year PCH.

When you think you can secure a 335d xDrive M Sport tourer on such a deal for about 1k down and £400ish/month and Im paying 300ish for my Octavia there are some deals to be had.

If you want to stay with the marque, the Superb SE business is available for £211 per month and £634 deposit on 3 + 23 and 10000 miles, which is ridiculously cheap.

http://www.fleetprices.co.uk/personal-lease-cars/skoda/superb-hatchback/superb-diesel-hatchback-20-tdi-cr-se-business-5dr-52011267

No connection to the site, just found it while researching leasing deals.

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[M12MKD]

Do not understand when you say "its people who want to walk away that will have nothing" ???

That is the nature of a PCP if you walk away at the end you have nothing or do you mean something else by that statement?

Walk away from Skoda

[Dempsek]

Just found this for a 2013 2.0 TDI DSG elegance estate https://www.carfused.com/used-cars/details/1390529, trade in could be around £1500 less.

[Timoctav]

I find the concerns over depreciation surprising. What do you expect? The Octavia is a non premium marque bread and butter large hatchback. Residual values were never going to be anywhere as near as good as the VW Golf, Audi A3, BMW 3 series or Mercedes C Class. I haven't checked but I expect the Octavia depreciation to be on a par with Ford's Focus and Mondeo or Vauxhall's Astra or Insignia. Why should it be any better than its market peers?

[Defenderben]

My 2012, tdi vRS had a list of around £23k in 2012, had someone bought it brand new.

I bought it as a 1 year old dealers demonstrator with 6k miles for £15.5k and also had a £1k Kenwood stereo upgrade, thrown in on top.

That was a mk2 which lots claim didn't depreciate very much. I had it for almost another 2 years and put 36k miles and traded for £11k May this year.

So over 3 years it was just over 50% depreciation, which seems on par with your MK3's. I just avoided the first years big drop.

Edited 28 December, 2015 by Defenderben

[andyvee]

It isn't the depreciation that is the issue as stated earlier. It is the disparity between the GFV and reality.

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